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May 25, 2017

Do we learn or just keep digging deeper?

As WV wrestles with its budget crisis, can we learn from other states efforts?

Meg Wiehe from the Institute on Taxation and Economic Policy was with us on The Watchdog Morning Show and says "yes", we can.

For one thing, plans to reduce taxes without careful planning, often don't work. Going back at least to the Gubernatorial Administration of Joe Manchin, WV has been diligently decreasing taxes with the belief it will increase revenue at some point. Wiehe points out that hasn't worked elsewhere and in states like Kansas, they're now trying to roll back the cuts.

Just last week, Kansas’s Senate narrowly rejected a bill that would have brought back a third income tax bracket, raised individual income tax rates and discontinued a 2012 tax cut for business owners.

“I think Kansas is the most important state to consider in this context,” Wiehe said. “The revenue gap that’s been caused by those tax cuts never materialized with the promised economic growth. They need to find about a billion dollars in revenue.” (wvmetronews.com)

In the Last Frontier, there have been no income taxes for decades, but with a looming $3 Billion dollar deficit, they're considering bringing it back.

Alaska legislators have been debating whether to reinstate the income tax. The Democratic majority in that state’s House sees the income tax as a way to deal with a deficit of around $3 billion.The Republican majority in the Senate prefers cuts to education and higher education and the use of reserves.

West Virginia is a state seeing a natural gas boom, but lawmakers are reticent to raise severance taxes on the industry. In Oklahoma, they have a different attitude.

Oklahoma lawmakers have gotten to the point where they’re seriously considering raising the tax rate on oil and gas production. Oklahoma is facing a budget shortfall of about $900 million — its third consecutive shortfall — as the state comes down the home stretch of its legislative session.

Oklahoma had economic triggers for tax cuts built into state law, but the Republican-led Legislature approved a bill last month repealing what would have been the next automatic cut and keeping the top rate at 5 percent.

The last triggered tax cut in Oklahoma took place in 2016, prompted by a prediction that state revenue would grow sufficiently. Instead, the price of oil declined, causing a plunge in state revenue.

“So this is kind of another good warning on these triggers,” Wiehe said.

Mixing a yearly budget plan with a structural tax change may be possible to do at the same time, but it requires serious thought, planning, and most importantly an accurate analysis of the impact of such changes.

That's something this legislature is not quick to do.

The Republicans in West Virginia’s Senate are embracing personal income tax reductions with faith that doing so will lead to increased economic activity.

“I’ve never seen a personal income tax cut pay for itself,” Behlke from National Conference of State Legislators said. “I’ve never seen a tax cut make people say ‘We dropped it 10 points but so much activity was created we got it back.'”

So WV can learn from our own mistakes and those of others.

Or we can base a budget on hopes and cliches that have been proven failures.